Responsible debtors could lose
Debt resolution could slow and some debtors escape bankruptcy, since pending NPL cases can be transferred to the TAMC. The debtors most likely to benefit would be those holding medium to large-size loans from multiple creditors. However, after such debts were transferred, the TAMC would be the sole creditor for them. This would facilitate more speedy decisions, as the TAMC has been given special powers to expedite the restructuring process. These special powers include debt to equity conversions, management changes and expedited foreclosure.
The drawback of this condition though is that group creditors would have no voice in the negotiations. Also, because the TAMC’s purpose is to rehabilitate, restructure, and increase liquidity according to national industrial and economic restructuring goals, some debtors could avoid bankruptcy. In theory, there is nothing wrong with this however, if the TAMC succumbs to political intervention there will be a tendency to induce corruption. The moral hazard of the situation may become even worse as irresponsible debtors intentionally become strategic NPLs, as happened before. Also, the government still cannot create an incentive system to motivate financial institutions to expand credit and to narrow their interest rate spreads, after NPLs have been transferred. Undoubtedly, this could deprive responsible debtors from benefits, whilst giving irresponsible debtors, whose NPLs are transferred to the TAMC, privileges such as write-offs and reduced interest rates on their loans.
Social security for small businesses - losses and gains
Professor Dr Kriengsak Chareonwongsak Executive Director, Institute of Future Studies for Development (IFD)
kriengsak@kriengsak.com, http://www.ifd.or.th
